Yes, but they are now expanding outside LCY, e.g. with the new ANR-MAN route. This is pretty much what their CEO said in an interview last year. Given the current situation - only destinations less than 500mls away being feasible with Fokker 50, almost all promising destiations within this perimeter being served now and the difficulties to get peak time slots at LCY, growth will focus on markets outside LCY until the airport has added capacity and the airline sorted out its future fleet.
VLM could easily fill larger aircraft during peak times on most of their routes, but so far had to try to squeeze in additional Fokker 50 flights. While frequency is on eof VLM's main selling points, it does not really make sense to have aircraft departing in 15minute intervals. With routes like AMS, RTM, MAN now hat 9+ flights on weekdays, it certainly would help to have a larger type of aircraft for the mornings and evenings.